UPDATE:This post has been updated with additional information about the process used to test the iPhone.

So much for the easy solution to the iPhone 4′s reception problem.

Reuters

In what could be the worst publicity yet for Apple’s latest device, Consumer Reports says it can’t recommend the gadget because of reception difficulties. After extensive testing, the independent magazine has replicated the dropped-call problem that has been reported by users since the phone was released in late June.

But the experience of editors at Consumer Reports also makes clear just how tricky it has been for users and testers to confirm the extent of the trouble. An editor first experienced dropped calls on the phone more than a week ago — just after the the magazine itself wrote a different online article saying the phone’s “supposed signal woes aren’t unique, and may not be serious.”

Consumer Reports then tested three phones in what sounds like the most high-tech of locations — an “isolation chamber” that is “impervious to outside radio signals.” It found that when skin touches the spot on the phone’s lower left side, the signal can degrade enough to cause calls to drop.

Apple has said it has done testing of its own and that the problems are caused by faulty display of the reception-indicator bars on the phone. The company said it will update the iPhone software to fix the issue, but the Consumer Reports article specifically questions the assertion that the trouble was due to software, not hardware.

Other tests have shown that the iPhone 4 did appear to display signal bars incorrectly, resulting in an appearance of massive signal loss when really the loss might only have been similar to what is seen in all cellphones. Further tests have shown that the phone held signals better than its Apple predecessors, despite showing a weak signal. And based on online comments, it seems that some users see the problem to an annoying degree and drop calls in addition to seeing declining bars, while others have no issues at all.

Plus, the iPhone’s U.S. network, AT&T, is known for having signal problems that could affect reception as well. The latest news could take some heat off AT&T over the reception trouble, the Journal’s Niraj Sheth points out.

The iPhone 4 has been enormously popular. But the latest tests are sure to put further pressure on Apple to come up with a solution to this problem that involves hardware. Consumer Reports suggests — no joke — duct tape (perhaps the most magical product ever created). A case also is likely to work. But for users who don’t want a case or tape on their phones, the magazine says it can’t recommend the iPhone 4 and suggests that users stick with the iPhone 3G S for now.

Apple did not immediately respond to a request for comment.

Readers, what do you think Apple will do in response? Would you buy the iPhone 4 and get a case, or wait?